Mike Larson – Big, Boring, And Beautiful Defensive Portfolio Positioning
Mike Larson, Editor of The Safe Money Report, joins us to outline the big, boring, and beautiful defensive portfolio positioning he is discussing with his subscribers. We start of reviewing the correction in most sectors, starting with early warnings in the implosion of meme stocks, smaller tech stocks, SPACs, cryptos, and over-inflated growth stocks by the 4th quarter of 2021; which then carried over into larger tech names and sector leaders by year-end and for most of this year. Even strong defensive sectors like consumer staples, utilities, and gold have corrected some recently, but they’ve just pulled down less than other sectors. We point out that in this kind of sell-everything environment, that having an asset class like gold pulling down less than other sectors, is a benefit in and of itself.
Next we pivot over to dismal performance of bonds after rolling over two years ago, and point out that the several decade bond bubble has been bursting right before investors eyes, dismantling the traditional financial planning model of the 60% stocks / 40% bonds allocations. Mike points out that the higher interest rates are also starting to impact the real estate markets, and that while this may not be another 2008-2009 Great Financial Crisis, the impetuous is there for a more drawn-out downward pullback in markets more reminiscent of the 1999-2002 Dot Com bubble correction. This change in market tenor is due to the last few years fiscal and monetary policies leading to high inflation, cost pressures to both consumers and businesses and slowing growth. We outline that if these cost inputs are not resolved, and business keep getting hit in their earnings like we saw with Walmart and Target just week, that it could escalate into cost cutting measure that leads to more job layoffs, and an environment more akin to a 1970s style stagflation.
We wrap up with a discussion on which kind of safer assets investors can turn to ride out the coming financial turbulence, and that other than gold and dividend paying stocks, that Mike sees cash as one of the better places to be. While the US dollar is getting eroded at over 8% by inflation at present, he points out that this is better than losing multiples more than that being overexposed to the equities markets, and that cash provides investors with some buying power once the corrective move has played out.